Moving Forward – and Upward – with ESG

Corporate environmental, social and governance (ESG) metrics and initiatives – encompassing everything from climate change to social inequality to regulatory compliance – have become heavily politicized over the last couple of years.

Collective efforts by leading organizations in the financial sector, for example, face accusations by Republican leaders suggesting current ESG practices are discriminatory against industry and in alleged violation of consumer-protection laws. This has led to lost business and anti-ESG bill proposals in at least 15 states.

Democratic leaders, on the other hand, say companies still aren’t doing enough to address global climate and human rights efforts during this critical time, and have accused multiple organizations of “greenwashing,” or significantly reducing commitments, while releasing misleading statements in support of branding.

Consumers and investors, however, are standing firm throughout the noise. In light of a global pandemic, civil rights and human equities in the age of social media, and climate disasters amidst the misuse of natural resources, the message is clear: they financially and culturally support companies who do good.

“Truthfully, there really isn’t much pushback, with most feedback from shareholders being overwhelmingly positive,” says Errol Labosky, managing director of DLA, a Fairfield-based internal audit and accounting advisory firm.

Though ESG initiatives require more significant capital up front – and an enterprise-wide understanding and collaboration of extremely varied guidelines and regulations based on geographies and jurisdictions – Labosky says his clients all say it’s worth it.

“ESG has evolved over time to become a significant business consideration and competitive advantage,” he says.

According to Nielson, more than two-thirds of millennials and Generation Z shoppers favor working with and purchasing from environmentally and socially conscious brands – even if they’re spending more to do so.

And, according to Nasdaq, investors, stakeholders – and even suppliers and distributors – actively research a company’s stance on socioeconomic factors and its sustainability efforts before choosing to work together.

“There’s been a lot more transparency in terms of what companies are actually doing in ESG over the last couple of years,” Labosky says. “You can only go so long saying you’re ‘doing something’ until you are challenged – but by then, the failure to provide the right level of oversight may have resulted in a tainted image.”

This affects not only bottom lines and branding, but also hiring and retention of top talent.

“Highly skilled and qualified candidates interviewing with these companies will ask ESG-related questions,” Labosky says. “That’s why certain tenants will only focus on buildings and properties with LEED certifications, motion-based HVAC – anything that could affect the health and wellness of their employees.

“Companies are prioritizing ESG initiatives after realizing the link to reduced turnover and increased work productivity,” he says.

Lastly, owners are just starting to realize the value of investing now to reduce operating costs – and gain returns on investments – later.

“Landlords with ESG-focused real estate assets are expecting to see increasing building values – and higher rents – over time, given the ability to participate in tax incentives and credits that ultimately boost property values,” Labosky says.

Gilbane Building Company

Gilbane Building Company – one of the largest privately held family-owned construction and real estate development firms in the world – launched its formal ESG strategy last year.

However, it wasn’t a huge financial, cultural or educational shift in the slightest for the 150-year-old, family-owned-and-operated business, says Chris Cornick, vice president, business unit leader of New Jersey.

“Weaving ESG into the fabric of who we are and how we build is and always has been our entire approach as a company, regardless of market conditions,” he says. “We just found it was important to our people and our clients to talk more openly about the environmental and social efforts we make outside of our transactions.”

Sure, every project completed by Gilbane is required to have a custom environmental sustainability action plan pertaining to concerns such as carbon emissions, waste tracking, water management, recyclable materials and more.

But more than a few ESG initiatives at the company go above and beyond:

$4 billion company-wide commitment to hire minority-, women-, veteran-, disabled-, and LGBQTIA+-owned subcontractors: “Over the last five years, we’ve averaged north of 30% in awards to small and diverse businesses in New Jersey annually,” Cornick adds.

By 2040, Gilbane will achieve zero waste to landfills, carbon neutrality, and a reduction in potable water use and consumption by 40%.

Gilbane’s Community Service Challenge pays its employees to volunteer, with more than 250 employees from the mid-Atlantic division volunteering 1,200+ hours alone.

Merck

Merck, the global biopharmaceutical company based in Rahway, launched a $1 billion Sustainability Bond in December 2021.

“It gave us the opportunity to pair the impact of our financial activities against our corporate strategy and our broader business objectives,” says Kyra Lanza, assistant vice president, ESG strategy and engagement at Merck. “However, operating as a responsible company isn’t new to Merck, as we’ve consistently engaged in these types of efforts for more than 135 years.

“There’s simply new nomenclature today focused on advancing in ways that make us a better corporate citizen by ensuring a sustainable and healthy future for all,” she says.

Starting with access to health, Lanza continues, “It’s central to who we are as a company. And, ignoring the link between climate and human health comes at a cost, so we of course want to move forward in ways that have positive impacts on the environment while maintaining our company’s ethics and values.”

Finally, Lanza says Merck’s ESG efforts have helped drive employee engagement, pride and retention.

“Prospective employees, particularly early talent, really want to understand how we’re operating and what choices we’re making,” she says. “They don’t simply want to work for a profitable company – they want to work for someone who is also helping society.”

Here are just a few examples of how Merck has committed to ESG:

For 35 years, Merck’s Mectizan Donation program has donated more than 4 billion treatments to 49+ countries to help eradicate river blindness and elephantiasis.

99% pay equity across employees of all genders and races/ethnicities.

Invested $2 billion to provide the World Health Organization with 90 million+ doses of the HPV vaccine for hard-to-reach populations.

Donated $1 million to relief efforts and partnered with the International Medical Corp to provide essential supplies to earthquake victims in Turkey and Syria.

According to DLA’s Labosky, for those pioneer organizations that started their ESG initiatives early, they’re beginning to reap the rewards of public accolades and pre-emanate real estate. “Therefore, most public backlash against corporate ESG is simply a result of sustained progress and growing momentum,” he says.

“ESG is a concept that is undoubtedly here for the long term,” Labosky concludes. 

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